On 16 June 2025, the Securities and Exchange Board of India (SEBI) released a consultation paper on a draft rule to regulate SDIs, specifically through the mandatory periodic disclosure of securitized debt instruments (SDIs).
The Securities and Exchange Board of India (SEBI) is the main organization that regulates and oversees the securities (stock and bond) markets in India.
Securities are like unique pieces of paper (certificates) that you can purchase or sell to invest your money.
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They are similar to formal promises or agreements, or contracts stating that you own something of value or that someone owes you money.
Businesses and governments issue securities to borrow funds from individuals or provide individuals a means of owning a portion of their company.
Examples
Shares (Stocks): If you purchase a share, you own a fraction of a company.
Bonds: If you purchase a bond, you are lending money to a company or government, and they agree to pay you back with some extra money (interest).
Why Do People Purchase Securities?
To make their money increase (earn profits or interest).
To own part of a company.
To receive periodic payments from interest or profits.
What are SDIs?
Securitized Debt Instruments (SDIs) are financial securities that are made from packaging different types of debt assets, such as loans, mortgages, credit card receivables, and transforming them into tradable instruments that can be sold to investors.
Through a process called securitization, a bank or financial institution combines various debt assets (such as loans, credit card debts) and sells them to investors.
Investors who buy these SDIs get regular payments (principal and interest).
It is like you go to a bank, and you ask them to repay some random guy’s loan. Now, since you have paid their loan, that random person now owes you the loan. So instead of making EMIs (equated monthly installments) to the bank, they will pay it to you now.
You earn as they are not just paying the original amount (borrowed amount), but also giving interest.
For this process, you get a certificate denoting that you have done the above-stated process. The certificate would be the security.
The loan that is being traded between the bank and the investor would be an SDI (Securitized Debt Instrument).
SEBI is the authority that regulates these actions.
*[The above explanation is oversimplified for better understanding. Please look into the process to understand better.]
What are the new rules?
- Mandatory Periodic Disclosures
- Who must disclose?
The trustees of the Special Purpose Distinct Entities (SPDEs)—the legal entities that actually issue SDIs—must make regular disclosures. - How often?
Twice a year (every six months), within 21 days after the end of March and September. - Where?
Disclosures must be submitted to SEBI and to the stock exchange where the SDIs are listed.
This will help the investors to be more informed and make early decisions. They will be able to foresee any potential defaults or changes in the pool (pool of debt securities). It is important as, if a borrower defaults on any loan, it will be the responsibility of the SDI holder and not the bank or the financial institution.
2. What Information Must Be Disclosed?
Maturity Details:
Maturity is when a loan is fully paid. Information about how long the loans will take to be repaid and how they are spread out over time.
Minimum Retention Requirement (MRR):
How much of the loan is the original lender (like a bank) still holding onto?
Credit Quality:
Data on overdue loans, how much of the pool is secured by collateral, credit ratings, past default rates, and recovery rates.
Loan-to-Value (LTV) and Debt-to-Income (DTI) Ratios:
These ratios help show how risky the underlying loans are.
Prepayment and Top-Up Loans:
How often are borrowers paying off loans early or taking additional loans.
Credit Enhancements and Liquidity Support:
Details about extra protections (like cash collateral or guarantees) provided to make the SDIs safer for investors.
Amendments to Loan Terms:
Any changes made to the underlying loan agreements after the securitization process.
Industry and Geographic Breakdown:
What sectors (housing, education, agriculture) and regions do the loans come from.
Material Events:
Any events or problems that could affect the performance of the loan pool or the payments to investors
- Different Formats for Different Types of Assets There exist various disclosure forms based on whether the SDIs are supported by standard loans, listed debt securities, credit facilities, or exposures of other kinds. This helps ensure that the information applies to the type of assets involved.
Where should you submit your suggestions?
You can tell SEBI what you think about these rules, if they should be implemented, any suggestions of your own, and more on the given link:
https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes
